Factoring Companies

If you’re factoring, your bank won’t deal with you, so you have something fundamentally ####ed up to start with. I don’t use factors, my business supports lines of credit with my bank. Use factors if you want, but posting your customer list and rates on the front page of the Toronto Star is probably just as fast and cheaper than factoring. Try asking any of the small fleets that signed on to that Associate Carriers scam how that worked out for them. Simpsons told Sears their business, look at them now.

 

In my opinion if you don't have the funds to bank roll your business for at least 60-90 days then maybe you shouldn't be in business.Factoring is not the way to go.

 

Unrealistic for most people. There is nothing wrong with factoring for a 3% tax deductible fee. Better to get off of it sooner than later to increase net profit but it's a small fee to have cash flow when starting out.

 

For a new business the first 5 years are tough sledding at the bank. That’s just a reality, they’re just not going to hand you any money. Bankers are like that. But another reality is Receivables are money, if they’re collectable. Any bank will lend on what they deem collectable. That’s where the problem starts for a lot of people. The first thing the bank does is look at the credit rating of the people you’ve extended credit to. Then they'll either ask you if you if you’ve lost your your mind, or they’ll set up a line for you. That’s how it works. I’ve been dealing with the same people now for years so I know them and what to expect. But back when I was growing NOBODY got credit until my bank authorized it. Saved me a lot of grief. Better to leave the load on the ground than haul it and not get paid. Extending credit when you don’t have any is risky in any business, but especially this one where the numbers are all huge. You touched on a big one in your post. Another thing that just is, no matter what business, an under capitalized start-up is going to fail. Any banker or management consultant will tell you that. There are exceptions of course, but in a lot of cases the debt load they created themselves in the beginning gets them in the end. Factors play on the risk for higher points. They’ll take risks a bank won’t, but they don’t really have any, bad ones get thrown back at you. Wait til you see what some of them charge you to use their money for a while instead of yours that you didn’t get. Rates are more loan shark than financial institution.

 

Guys freak out when they find out that 3% fee is the equivalent of 36% interest when figured annually.. each month you factor 10k of invoices 300 bucks x 12 months 3600 bucks yet you had 10 k to play with each month not 120 k

 

I was always way to cheap to use factoring, so I just went to the bank and got a business line of credit. Was pretty easy, started off at 45K @5% and after a year they bumped it to 80K@4.45%. Some might argue that "it doesn't provide protection if you don't get paid" which is true, but most factoring companies will come back on you, for invoices they can't collect also (at least the majority of the ones I talked too). The ones that will take the loss for you, wanted a lot more than 3% monthly, and were harder to get on with. Thankfully for me, I wasn't working for anyone I didn't think would not pay me, and I had a vicious Jewish lawyer on standby, ready to lien any trailers/loads that I didn't get paid for.

 

The factoring company I have used just charged a 3% 1 time fee. Not sure who charges 3% per month but I've never heard of that

 

Although I don't agree with factoring, I don't think it works like that.
3% is 3%
the time frame doesn't matter.